A retail dealer in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31st March 2007. Selling price per shirt: P800 Variable cost per shirt: P600 Fixed Cost: Staff salaries: P2 400 000 General Office Cost: P800, 000 Advertising Cost: P800, 000 REQUIRED: a) Calculate Break-even Point in sales revenue and number of shirts sold. b) What is the margin of safety of the dealer expressed as a percentage . c) Assume that 30, 000 shirts were sold during the year, find out the net profit of the firm. d) Assuming that in the coming year, an additional staff salary of P1,000, 000 is anticipated, and price of shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales? e) If taxation rate is 12.5%, and fixed cost increase to 6 000 000 what is the level of sales that must be achieved to a targeted profit of P8 000 000.

a) Calculate Break-even Point in sales revenue and number of shirts sold.

b) What is the margin of safety of the dealer expressed as a percentage .

c) Assume that 30, 000 shirts were sold during the year, find out the net profit of the firm.

d) Assuming that in the coming year, an additional staff salary of P1,000, 000 is anticipated, and price of shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales?

e) If taxation rate is 12.5%, and fixed cost increase to 6 000 000 what is the level of sales that must be achieved to a targeted profit of P8 000 000.

Explanation:

selling price per shirt $800 x 24,000 = $19,200,000

variable cost per shirt $600 x 24,000 = $14,400,000

total fixed costs $4,000,000

net income $800,000

contribution margin per unit = $800 - $600 = $200

break even point = $4,000,000 / $200 = 20,000 shirts x $800 = $16,000,000

margin of safety = (current sales - break even point) / current sales = ($19,200,000 - $16,000,000) / $19,200,000 = 16.67%

if 30,000 shirts were sold:

contribution margin 30,000 x $200 = $6,000,000

fixed costs $4,000,000

net income $2,000,000

if sales price increases to $920, contribution margin = $320

fixed costs increase to $5,000,000

break even point = $5,000,000 / 320 = 15,625 shirts x $920 = $14,375,000

fixed costs increase to %6,000,000

targeted profit $8,000,000 + tax rate = $9,142,857

sales target = ($6,000,000 + $9,142,857) / $320 = 47,321.43 ≈ 47,322 shirts

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